How should a budget be judged? Either narrowly, viewed as a matter of who gets what, or broadly assessed on how it contributes to a growing economy. Minister for Finance Michael Noonan has said he favours the latter approach. Last May, he launched a public consultation on how the tax system can encourage entrepreneurship. In that dialogue, which he sought answers to questions – to which, one assumes, he already knew most of the answers.
Nevertheless, the consultation exercise was worthwhile, both to learn the views and experiences of entrepreneurs and others who are succeeding or failing in their efforts to build businesses. The feedback received should inform his thinking in preparing the October budget.
Some of the issues the Minister has identified – the tax barriers to setting up new businesses, and how can these be overcome; and whether the different tax treatment of PAYE and self-assessed taxpayers can be better aligned – seem likely to be addressed in the budget. Why the self-employed pay a 3 per cent higher Universal Social Charge than the employed has always proved impossible to defend and should never have been introduced. It represents a discriminatory high tax on risk takers who should be encouraged by the Government rather than discouraged through unequal tax treatment.
The problem for the Government is that with the exception of a low corporation tax rate, which is levied on profits and mainly benefits multinational companies, there is little to encourage domestic entrepreneurs. The overall balance struck between risk and reward discourages rather than encourages risk-taking. Ireland’s high rates of personal and capital taxation represent a disincentive to entrepreneurship, employment and growth. The weak state of the public finances after the financial crisis meant higher taxes and major spending cuts became an imperative rather than an option.
Mr Noonan has an opportunity in October to achieve a better balance between risk and reward and to boost entrepreneurship.